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EU caps may dent competition

But cellcos brought it on themselves: Reding

The debate over international roaming charges in the EU has raised the issue that always dogs telecoms in the region – whether consumers should be safeguarded by legislation or by the free market.

Time and again mobile operators – and not only in Europe of course – have weakened their own argument that competition supports consumer choice, and so makes regulation unnecessary, by acting with collective greed, and roaming is a good example of this.

EU telecoms commissioner Viviane Reding announced long awaited proposals last week over how to deal with what she called "unacceptable" mobile roaming charges. These generate over €10bn a year for the operators, but ending them would not only deprive the largest ones of an additional revenue stream, but dent their competitive advantage, especially that of Vodafone.

The giant relies on its wide ranging network, and the fact that it has the only really unified roaming tariff for businesses across Europe, to take enterprise business from other cellcos. Their closest attempt to offer region-wide roaming comes from the two carrier alliances, FreeMove and StarMap, but neither of these yet offer unified roaming tariffs across all members and territories.

Vodafone, then, stands to lose most from regulation of roaming tariffs since there will be less incentive for businesses, in particular, to use its network if its rivals are forced to cut their charges – or at least, it will have to reduce its own on-network charges further to remain attractive.

Vodafone has 6m users of its Passport service, which offers some of the benefits the EU now looks to make compulsory, notably charging local rates to use the phone while abroad. With the proposed new rules in place, the cellco said it could not have launched this product, and goes on to argue that similar creativity in terms of tariffs and service expansion round Europe will be thwarted by regulation.

All this may be another pressure for the larger cellcos to deal with, in the increasingly tough European market, but it is long overdue for consumers. The operators have had plenty of warning that they would need to address roaming, but Reding was clear they have run out of chances and carriers have failed to keep earlier promises that they would reduce charges.

She said new figures proved that UK-headquartered mobile operators have continued to charge the same roaming tariffs as before the pledges of voluntary reductions while some have even increased them.

"The market had had ample time to make adjustments and hasn’t done it. My conclusion is that there have been no major downward movements, indeed some prices have gone up, and the only changes, 'special packages', have not been taken up by consumers as they are opt-ins and cost extra. Prices are still far too high and bear absolutely no relationship to real 'cost-plus' margins. There is still no transparency and that is a heavy burden on business and industry, especially small firms and start-ups."

The draft of new roaming regulations will place "an absolute prohibition" on charges levied for the receipt of call overseas from phone numbers in their home country – a change BT has long lobbied for.

BT CEO Ben Verwaayen commented: "We get all the flak and they get all the profits. It breaks my heart for the mobile operators – not."

Reding says she will press for the EC to pass the regulations this spring and then fast track them through the national governments of the member states and through the European Parliament so they will become operational by the summer of 2007. It is likely that cellcos will have to cut the price of roaming calls by 50 per cent to 60 per cent.

Michael Bartholomew, the director of the industry body, the European Telecommunications Network Operators (ETNO) said: "Such a heavy intervention at both wholesale and retail levels would be unprecedented in the mobile market and appears disproportionate," and showed the EC "pushing its powers to the limit and being over-intrusive"

The GSM Association said: "The EC's proposals to regulate retail roaming prices and wholesale roaming prices are in the mobile phone sector are unprecedented, unnecessary and heavy-handed." Its CEO Rob Conway said: "Enabling consumers to use their mobile phones on a pan-European basis is a value added service and mobile operators should be able to charge a market rate for it. It is inappropriate to regulate tariffs at a pan-European level as the commercial and regulatory factors in each national market are different."

The fact is, though, that with alternatives to international cellphones becoming more plentiful and reliable – from Skype and other VoIP services to voice over Wi-Fi hotspots to discount plans such as those of Carphone Warehouse – these associations should be urging their members to accelerate roaming reductions, not defending current practise, for more is at stake than this particular revenue.

Indeed, roaming is one of the key issues that could drive a decline in usage of cellphones, especially in the lucrative international business sector. Reding’s response was: "[The mobile operators] already seem to be on the verge of claiming bankruptcy. They are nothing of the sort. We are not against people making normal profits but we are against 95 per cent margins achieved on the backs of travelers."

Wireless Watch is published by Rethink Research, a London-based IT publishing and consulting firm. This weekly newsletter delivers in-depth analysis and market research of mobile and wireless for business. Subscription details are here.